By
: M.S.Yatnatti Editor and Video Journalist Bengaluru : The Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest (SARFAESI) Act 2002 is a powerful
instrument in the hands of the banks and financial institutions (FIs) as secured
creditors. This Act helps them enforce securities held as collateral to loans
disbursed by them should such loans turn out as non-performing assets (NPAs)
during the currency of the loan without interference from the Courts. Section
13 of the Act gives power to the secured creditor even to evict the tenant. It
is our observation that the banks have been overenthusiastic in taking recourse
to SAFRAESI Act provisions as a first resort of recovering the micro, small and
medium enterprises (MSME) loans, mostly violating guidelines of Reserve Bank of
India (RBI).Finance is the backbone of business.No trade or industry can run without adequate
finance.The internal resources of a
business organisation are often insufficient for meeting all its needs.It is also not always possible for the
owners, promoters or the entrepreneurs to mobilize finance from their own
resources.Therefore promoters raise
capital through borrowings, keeping in view the short term, medium term or long
term requirements of the trade or industry.Every industrial project requires
finance in the form of risk capital, long term, medium term and short term or
working capital and/or machinery on hire purchase/lease basis. All these types
of financial assistance are provided by various institutional agencies,
commercial banks, co-operative banks, Regional Rural Banks, State Financial
Corporations and International FinancialInstitutions and Syndicated Loan Market and NSIC etc,. A great emphasis
has been placed by the government to ensure that all viable projects are provided
adequate finance (Capital) for a sustained growth of trade and industry.The borrowed funds have enabled many
promoters to realise their dreams and to bring their project to an actual
shape. Timely availability of Institutional and bank finance at reasonable
rates is essential for successful implementation of any commercial project.
This requires thorough and upto date knowledge of lending schemes of various
financial institutions likeIDBI, IFCI,
ICICI, IRBI, SCICI, Exim Bank, Commercial Banks, RCTC, SIDBI, UTI, LIC, SFCs
etc., particularly with reference to the preparation of project report,
appraisal by the lending institutions, assessment of financial requirements as
per RBI norms, terms and conditions on which finance is available, procedure for
filing application for finance, execution of documents and charging of
securities.Besides the financing has to
be done as per the RBI Credit Policy & Instructions contained in its
various Circulars & Committee Recommendations. Special RBI instructions have
also been issued on bank finance, for Leasing & Hire purchase Concerns,
Diamond Exporters, Consortium Advances, Housing Finance, Priority Sector
Advances, Export Credit, Commercial papers etc.

According
to experts a default does not strip you of your rights or make you a criminal.
Banks have to follow process and give you time to repay dues before
repossessing your assets to realise the arrears. Typically, banks initiate such
proceedings under the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interests (Sarfaesi) Act. If the borrower's account is
classified as a non-performing asset (NPA), where repayment is overdue by 90
days, the lender has to first issue. the lender has to first issue a 60-day
notice to the defaulter. "If the borrower fails to repay within the notice
period, the bank can go ahead with sale of assets. However, in order to sell,
the bank has to serve another 30-day public notice mentioning details of the
sale,” says banking and management expert. Do not write off your asset mentally
the moment it is repossessed. Keep track of the auction process--it's easier to
do so now as most lenders conduct e-auctions. Lenders are required to refund
any balance after recovering the dues, which is a real possibility given that
property prices can shoot up beyond the owed amount. "After recovering the dues
and all expenses of conducting the auction, the bank has to refund the amount
to the borrower as the money belongs to him legitimately,” says financial
experts .. During the notice period, you can make your representation to
the authorised officer and put forth your objections to the repossession
notice. "The officer has to reply within seven days, giving valid reasons if he
rejects the representation and objections raised by the borrower,” says
financial experts.

Do
not forget that banks are regulated entities that cannot behave like
moneylenders while trying to collect dues. Following adverse reports about the
conduct of recovery agents, the RBI had pulled up banks over the issue a few
years ago. Banks too decided to voluntarily commit to certain best practices as
part of their code of commitment to customers. For one, agents can contact
borrowers at a place chosen by the latter. In case they have not specified a
place, the agents can visit either the borrower's residence or place of
work. They are required to respect borrowers' privacy during these visits and
ensure civil and decent behaviour. They also cannot land up at unearthly hours.
The window available is 7 am to 7 pm, unless the borrower's working hours
necessitate different timings. Agents cannot resort to harassment or
intimidation and nor can they humiliate the borrowers or their family members. The
SARFAESI act gives the customer the right to appeal against the action of
repossession taken by the bank in the Debt Recovery Tribunal u/s 17 within 45
days from the date when the action was taken. If the DRT passes an order
against the borrower, then an appeal can be filed before the Appellate Tribunal
within 30 days of receiving it. If it is held in the appeal that the possession
of the asset taken by the secured creditor was wrongful, the Tribunal or the
Appellate Tribunal may direct its return to the borrower, along with
appropriate compensation and cost.